The financial sanctions are very severe. The United States has in effect asked all banks in the world not to deal with North Korea or to handle any transactions involving the country. The Bush administration says that it is enforcing laws against money laundering and counterfeiting, and seeking to stop transactions relating to weapons of mass destruction. But statements by Treasury Department officials have made clear that the goal is to cut off all North Korean financial intercourse with the rest of the world.

Undersecretary of the Treasury Stuart Levey told The Wall Street Journal on Aug. 23: “The U.S. continues to encourage financial institutions to carefully assess the risk of holding any North Korea-related accounts.” I found instances in North Korea—confirmed by foreign businessmen and foreign embassies—in which legitimate imports of equipment for light industries making consumer goods have been blocked because banks would not handle the transactions. “If the U.S. is not ready to lift all of the financial sanctions, all at once,” Foreign Minister Paik Nam Soon said, “then it should show us in other ways that it is ready to give up the regime-change policy.”

Kim Gye Gwan spelled out what Pyongyang has in mind, calling for bilateral negotiations without preconditions leading to a package deal that would be followed by the resumption of the six-party talks. For example, he indicated, the U.S. would lift some or all of the sanctions in return for North Korean concessions such as a cessation of plutonium production at the Yongbyon reactor; a missile-test moratorium, or a commitment not to transfer nuclear weapons or fissile materials to third parties. Or Washington would offer incentives—such as energy aid and removal of North Korea from the State Department list of terrorist states—in return for a North Korean compromise on aspects of the financial sanctions, to be negotiated.

How much are the sanctions hurting? In Pyongyang’s view, they are seriously impeding North Korean efforts to carry out economic reforms, because they are blocking foreign investment and trade. They are slowing down economic growth. But there is no sign whatsoever that the sanctions are undermining the Kim Jong Il regime.

North Korea is stable and there is more economic activity in Pyongyang than I have ever seen—more cars and bicycles, better-dressed people, more restaurants, more small mom and pop stores, and above all more interest in making money. That’s the result of reform policies that give more autonomy and profit incentives to economic enterprises. Everything is still formally owned by the state, but enterprises are leased to managers who pay less to the state than they used to and can keep much more if they make a profit.

The United States Treasury Department quickly imposed strict financial sanctions on Banco Delta Asia, naming it as a “a willing pawn for the North Korean government to engage in corrupt financial activities through Macau, a region that needs significant improvement in its money-laundering controls.” [5] Although a Treasury spokesperson was candid about the Banco Delta Asia sanctions, she had “no comment” about whether Treasury was also investigating Beijing’s Bank of China branches in Macau.[6] U.S. law enforcement officials involved in the “Smoking Dragon” case were initially frustrated by a Justice Department decision, apparently made for diplomatic reasons, not to name China and North Korea as the sources of counterfeit currency and other goods. Oddly, indictments in an August 2005 counterfeiting case referred to source countries only by numbers.[7] North Korea was subsequently named, but China’s role remains shrouded.

Macau sources told U.S. officials that when Banco Delta Asia ceased passing supernotes for Pyongyang, North Korea’s agents moved their accounts to Chinese state-owned banks in the Zhuhai Special Economic Zone adjacent to Macau.[8] According to the Los Angeles Times, immediately following the U.S. Treasury action in Macau, North Korea’s flagship front-company there, Zokwang Trading Co., closed its headquarters on the fifth floor of an office building near Banco Delta Asia, and “most of its personnel have relocated to Zhuhai, just across the border in China proper.”[9]

Over the next few days and weeks, there will be pressure in Washington to orchestrate some economic blockades or even military action. But the problem is simply that North Korea wants a way to make money, and US-led anti-counterfeiting measures are preventing it from doing so. Of course, North Korea started it by trying to make money the lazy way.

This is not a nuclear crisis by any means. It doesn’t require military countermeasures. US sanctions and world banking controls are already pinching North Korea’s money laundering, and hopefully this can goad North Korea to start running legitimate export businesses. But Bush (and other American newspapers) have framed it as a runaway nuclear proliferation problem, which it is not at all. Under that paradigm, scofflaw nations need to be contained. Under the money laundering paradigm, the US is already doing enough and simply needs to continue its vigilance. But listen to George W. Bush talk about it; I guarantee you the word “counterfeiting” will not pass his lips once. Instead he will use words like “terrorism” and the need to “get tough” on rogue states. Instead he should say, “Don’t Mess with Our Currency, Assholes!”